INTERGROUP CORP (INTG) stock intrinsic value fair value estimate & owner earnings analysis

InterGroup is a small Los Angeles-based holding company with two businesses. The larger is the 544-room Hilton San Francisco Financial District, owned through its 75.9%-held subsidiary Portsmouth Square and run by Aimbridge under a Hilton franchise that runs to January 31, 2030. The second is a wholly owned portfolio of apartment complexes and a few commercial and single-family properties in Texas, Kentucky, Missouri, New Jersey and Southern California. The CEO also runs a small securities trading account. How the cash flow was measured. We started from operating cash flow and stripped out working-capital swings, stock compensation and the cost of keeping the properties in shape. We also removed the securities account, because buying and selling stocks inside operating cash flow had swung the reported figures by as much as $19 million a year. On that basis, the business before interest produced about $16 million a year before the pandemic. It fell to a loss or close to zero in fiscal 2021-2024 and recovered to $10.6 million in fiscal 2025. Fiscal 2026 (to June 2026) was stronger again. Hotel revenue rose 20% to $55.8 million, with occupancy at 95% and the average room rate at $253. Hotel profit before interest and depreciation rose from $8.7 million to $12.5 million, and the apartments earned $8.9 million. We treat fiscal 2025-2026 as the business as it stands today. The pre-pandemic years describe a San Francisco market that has not fully returned, and the pandemic years were a one-off collapse. The debt decides the outcome. The hotel carries a $67.0 million senior loan (the greater of 7.65% or SOFR plus 4.75%) and a $36.3 million mezzanine loan (7.25%, stepping up to 11.25% in March 2027). Both mature April 9, 2027, with three one-year extensions to 2030 that depend on meeting loan conditions. A lender-controlled cash account captures all hotel receipts. These loans replaced debt that went into default in January 2024, and that default had raised doubt about the subsidiary's survival until the March 2025 refinancing. The hotel loans are not obligations of InterGroup itself, but InterGroup has lent the hotel subsidiary $38.1 million, which ranks behind them. The apartments carry about $94.5 million of mostly fixed, below-market mortgages, which we count at a modest discount for their cheap rates. We count the hotel debt at a premium for its above-6% cost. Bear case: hotel cash flow slips back to the fiscal 2025 level of about $6.5 million a year after maintenance spending, and renewing the Hilton franchise in 2030 requires a $25 million renovation. The hotel is then worth about $88 million against about $114 million owed, so it goes to its lenders and InterGroup recovers nothing, including its $38 million loan. The apartments, with income flat, are worth about $110 million. Corporate overhead of about $2.8 million a year, plus margin interest and taxes, costs about $63 million in today's money. Against roughly $90 million of apartment and other debt, offset by about $9 million of cash and securities, the company would owe about $34 million more than it is worth, or roughly -$16 per share. Base case: the hotel earns about $9 million a year, a little below fiscal 2026. Occupancy is already 95%, and the hotel was closed July 31-August 9, 2026 to remove its pedestrian bridge. The case also assumes a $15 million renovation for the 2030 franchise renewal and hotel debt that stays more expensive than 6% through 2035. The hotel is then worth about $138 million against about $121 million of effective debt. Adding a $5 million lender reserve leaves about $22 million, all of which reaches InterGroup through its loan. The apartments grow income 1% a year for ten years, below their roughly 1.6% annual record, and are worth about $122 million against about $87 million of effective mortgage debt. After overhead, InterGroup is worth roughly what it owes, about $0.65 per share. In this case, total cash flow after the 2027 mezzanine step-up runs slightly below the total interest bill. That is why we show essentially no surplus for shareholders. Bull case: the hotel holds its fiscal 2026 earnings and returns 14 rooms (now offices) to service, for about $10.6 million a year. The renovation costs $10 million and the debt refinances near 7%. The hotel is then worth about $168 million, leaving about $56 million above its debt, of which InterGroup keeps about $52 million after outside Portsmouth holders. The apartments grow 1.6% a year for ten years and are worth about $130 million. That gives about $20 per share. What changed: our previous estimates ($11 / $24 / $42) treated cash flow after interest as the owners' and did not subtract the roughly $200 million of mortgage and hotel debt. Valuing the properties first and then deducting what is owed is the main reason the estimates fell. The stronger fiscal 2026 hotel results partly offset it. What would make this wrong: a lasting San Francisco recovery that lifts room rates without matching cost growth, or a sale of apartment properties above our values. On the downside, failing the 2027 extension tests or a costly franchise renewal would hurt.